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Labor Market Casts Pall Over Japan

April 13, 1999

TOKYO (AP) _ Worsening conditions in Japan’s labor market are casting a shadow over budding signs of improvement in business sentiment, the Economic Planning Agency said Tuesday.

In its April report, the EPA said that while conditions remain severe, the deterioration of the economy is slowing to a halt _ the same assessment it reported last month.

Still, accelerating corporate restructuring is leaving more and more people out of work amid Japan’s worst recession in 50 years.

The unemployment rate soared to a record high of 4.6 percent in February, the latest month for which data are available. That caused the agency to downgrade its view of the employment situation in its report.

EPA chief Taichi Sakaiya has warned that the jobless rate could rise well above 5 percent in coming months as companies shed redundant workers.

Despite the increasing unemployment, Takashi Omori, director of the national economic division at the EPA’s research bureau, said the possibility the overall economy may worsen further ``has receded for now.″

For now government spending was putting a floor under the economy and preventing it from worsening, the EPA said.

The EPA noted there have been some signs of improvement since last month’s report. The Bank of Japan’s latest survey of business sentiment, released last week, showed that corporate sentiment improved across the board in the first quarter of 1999.

Part of that improvement was due to lower interest rates and easier credit conditions, as the effects of the central bank’s loose monetary stance and steps taken to stabilize the financial system filtered through the economy, the EPA said.

The agency also said that lower interest rates are helping to spark a nascent recovery in housing construction.

Omori described the economy as remaining in a precarious state, saying that as long as the beneficial effects of policy steps last, sentiment could improve and lead to stronger economic activity. Conversely, however, he said the policy effects could wear off, thus pulling the rug out from under the economy.

``At this point, both (scenarios) are possible,″ he said.

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